<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 6, 1999
Commission File Number 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 458-8500
Former name, former address and former fiscal year if changed since last
report:
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The information required by this item was included in Item 5 of the
Company's Form 10-Q filed August 16, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial Statements of Business Acquired
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants 2
Audited balance sheet 3
December 25, 1998
Audited statement of income 4
Year ended December 25, 1998
Audited statement of changes in stockholders' equity 5
Year ended December 25, 1998
Audited statement of cash flows 6
Year ended December 25, 1998
Notes to financial statements 7
Year ended December 25, 1998
Unaudited balance sheet 10
June 30, 1999
Unaudited statement of income 11
Six months ended June 30, 1999
Unaudited statement of changes in stockholders' equity 12
Six months ended June 30, 1999
Unaudited statement of cash flows 13
Six months ended June 30, 1999
Notes to financial statements 14
Six months ended June 30, 1999
(B) Pro Forma Financial Information 17
Unaudited pro forma consolidated balance sheet 18
June 30, 1999
Unaudited pro forma consolidated statement of income 19
Year ended December 31, 1998
Unaudited pro forma consolidated statement of income 20
Six months ended June 30, 1999
(C) Exhibits 21
</TABLE>
Page 1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
MOUNTAIN, LTD.:
In our opinion, the accompanying balance sheet and the related statements of
income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of MOUNTAIN, LTD. as of December 25, 1998,
and the results of its operations and cash flows for the year ended December
25, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
August 6, 1999
Page 2
<PAGE>
MOUNTAIN, LTD.
Balance Sheet
December 25, 1998
<TABLE>
ASSETS
- ----------------------------------------------------------------
<S> <C>
Current assets:
Cash $ 129,366
Accounts receivable 1,629,514
Prepaid expenses and other receivables 16,834
-----------
Total current assets 1,775,714
Fixed assets, net 183,128
-----------
Total assets $ 1,958,842
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
Current liabilities:
Note payable $ 664,768
Accounts payable and accrued expenses 221,818
-----------
Total current liabilities 886,586
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 2,000
shares authorized, 201 shares
issued and outstanding -
Additional paid-in capital 37,500
Retained earnings 1,034,756
-----------
Total stockholders' equity 1,072,256
-----------
Total liabilities and
stockholders' equity $ 1,958,842
===========
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
MOUNTAIN, LTD.
Statement of Income
Year Ended December 25, 1998
<TABLE>
<S> <C>
Contract placement services $ 11,400,729
Cost of services 9,452,672
------------
Gross margin 1,948,057
Selling, general and administrative expenses (1,120,377)
Other income (expense):
Interest expense (38,542)
Other, net 2,826
------------
Net income before income tax 791,964
Income tax expense (48,020)
------------
Net income $ 743,944
============
</TABLE>
See notes to financial statements.
Page 4
<PAGE>
MOUNTAIN, LTD.
Statement of Stockholders' Equity
Year Ended December 25, 1998
<TABLE>
Common Additional
Stock Paid-In Retained Stockholders'
Shares Capital Earnings Equity
----- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 26, 1997 201 $ 37,500 $ 887,929 $ 925,429
Net income 743,944 743,944
Distributions to stockholders (597,117) (597,117)
----- ---------- ------------ -------------
Balance at December 25, 1998 201 $ 37,500 $ 1,034,756 $ 1,072,256
===== ========== ============ =============
</TABLE>
See notes to financial statements.
Page 5
<PAGE>
MOUNTAIN, LTD.
Statement of Cash Flows
Year Ended December 25, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 743,944
Adjustments to reconciles net income to cash
provided by operating activities:
Depreciation 43,035
Changes in operating assets and liabilities:
Accounts receivable (587,318)
Prepaid expenses and other receivables 8,642
Accounts payable and accrued expenses 135,114
---------
Net cash provided by operating activities 343,417
---------
Cash flows from investing activities:
Capital expenditures (79,765)
---------
Cash flows from financing activities:
Net borrowings under revolver 307,077
Distributions to stockholders (597,117)
Deposits 2,799
---------
Net cash flows used in financing activities (287,241)
---------
Decrease in cash (23,589)
Cash, beginning of year 152,955
---------
Cash, end of year $ 129,366
=========
Supplemental cash flow information:
Cash paid for interest $ 38,542
=========
Cash paid for taxes $ 42,628
=========
</TABLE>
See notes to financial statements.
Page 6
<PAGE>
MOUNTAIN, LTD.
Notes to Financial Statements
Year Ended December 25, 1998
1. NATURE OF OPERATIONS:
MOUNTAIN, LTD. (the "Company") provides telecommunications engineering and
related support services to the telecommunications industry on a worldwide
basis. The majority of the Company's clients are telephone operating
companies and long distance toll carriers throughout the United States.
However, the Company operates several divisions as follows:
V&M Communication Services
VMCS was acquired in 1989 for the purpose of establishing a presence
with (then) Pacific Bell Telephone Company. This division remains
active and is a registered name, or D/B/A, in several of the western
states.
PROTELCON, INC.
PROTELCON is an acronym for Professional Telephone Consultants, Ltd.
This division is used as a D/B/A for MOUNTAIN, LTD. in several states
where neither the name MOUNTAIN, LTD. nor V&M Communications Services
were used in the corporate registration process.
Ditch Witch of West Africa
In the 1980's MOUNTAIN, LTD. was a factory-authorized dealership for
this brand of underground construction equipment. This division
actively pursued sales and service agreements throughout western and
eastern Africa. Today, both this effort and this dealership are
inactive. Ditch Witch of West Africa is another D/B/A of MOUNTAIN,
LTD.
The Land Survey Team
This operating division was developed to address the need for real
property and boundary surveys required by utility clientele. This
division continues to operate, however, it no longer performs
land-surveying services with in-house staff. Such services are now
provided through a network of approved subcontractors. As an in-house
operating division, the land survey team provides Global Positioning
System utility mapping services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Estimates:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fixed Assets:
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful life of
the individual assets or the related lease terms, if applicable, whichever is
shorter. Upon retirement or sale, the cost and related accumulated
depreciation and amortization are removed from the accounts and any resultant
gains or losses are included in the statement of income. Maintenance and
repair costs are charged to expense as incurred. The estimated useful lives
of each class of assets are as follows:
<TABLE>
<S> <C>
Furniture and fixtures 10 years
Engineering and office equipment 3-5 years
Vehicles 10 years
</TABLE>
Page 7
<PAGE>
Fair Value of Financial Instrument:
The Company's financial instrument consists of a revolving line of credit.
The Company believes the recorded value approximates fair value.
Revenue Recognition and Cost of Services:
Revenues from contract placement services are recognized by the Company upon
performance of services. Cost of services consists of expenses for the
operations of the Company's office, principally direct wages and payroll
taxes paid to the consultants. Accounts receivable includes approximately
$11,800 of unbilled receivables that were billed in 1999.
Advertising Costs:
Advertising costs, expensed as incurred, were approximately $48,900 for 1998.
Income Tax:
The Company is not generally subject to federal income taxation due to the
Company's election of `S' corporation status, whereby substantially all its
tax attributes and obligations accrue to the stockholders. Therefore, the
Company has no federal income tax provision. The income tax provision is the
result of certain states in which the Company transacts business that do not
recognize `S' corporation status as it relates to state income and franchise
taxes.
Fiscal Year:
The Company's fiscal year ends on the last Friday in December.
3. FIXED ASSETS:
As of December 25, fixed assets consisted of:
<TABLE>
<S> <C>
Vehicles $ 76,619
Furniture and fixtures 33,236
Engineering and office equipment 177,352
---------
287,207
Less accumulated depreciation 104,079
---------
$ 183,128
=========
</TABLE>
4. NOTE PAYABLE:
The Company has a line of credit for $1,000,000 at "National Prime" plus .5%
(8.25%), collaterallized by substantially all Company assets. The amount of
available borrowings is based on formula-determined amounts of accounts
receivable and unbilled receivables. Under the terms of the agreement the
Company is required to maintain on deposit with the bank a cash balance of
$15,000. The note is on demand, and will expire May 30, 2000. The line of
credit has been personally guaranteed by the stockholders.
Page 8
<PAGE>
5. LEASE COMMITMENT:
The Company leases its principal office space. Rent expense for 1998 was
approximately $45,100. The Company is liable for the future minimum lease
payments as follows:
<TABLE>
<S> <C>
1999 $ 36,331
2000 36,331
2001 36,331
2002 36,331
2003 36,331
Thereafter 3,028
---------
$ 184,683
=========
</TABLE>
6. CONCENTRATION OF CREDIT RISK:
Approximately 50% of the Company's revenues and approximately 57% of accounts
receivable, are related to one customer. However, contracts with this
customer are individually negotiated and obtained from over seventy of the
customer's regional managers.
The Company maintains cash on deposit in accounts which at times exceed
federally insured limits. The Company has not experienced any losses on such
accounts and believes it is not exposed to any significant credit risk on
cash.
7. EMPLOYEE BENEFIT PLAN:
The Company has established an employee benefit plan, under 401K of the
Internal Revenue Code, which covers substantially all employees. The plan
provides for voluntary employee contributions only. In 1998 the Company
incurred $4,900 of costs administering the 401K plan.
8. SUBSEQUENT EVENT:
On August 6, 1999, Diversified Corporate Resources, Inc. ("DCRI") completed
the acquisition of all of the outstanding stock of MOUNTAIN, LTD. The
purchase price consists of approximately $2,430,000 in cash, 75,000 shares of
DCRI's Common Stock (subject to a lock-up agreement) and three annual
deferred payments of approximately $1,180,000 each, beginning October 1,
2000. The deferred payments will be reduced up to 50% each if certain levels
of profitability are not maintained.
Page 9
<PAGE>
MOUNTAIN, LTD.
Balance Sheet
June 30, 1999
(Unaudited)
<TABLE>
ASSETS
- ----------------------------------------------------------------
<S> <C>
Current assets:
Cash $ 97,618
Accounts receivable 1,829,334
Prepaid expenses and other receivables 24,794
-----------
Total current assets 1,951,746
Fixed assets, net 280,333
Other assets 8,598
-----------
Total assets $ 2,240,677
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
Current liabilities:
Note payable $ 563,849
Accounts payable and accrued expenses 230,023
-----------
Total current liabilities 793,872
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 2,000
shares authorized, 201 shares
issued and outstanding -
Additional paid-in capital 37,500
Retained earnings 1,409,305
-----------
Total stockholders' equity 1,446,805
-----------
Total liabilities and
stockholders' equity $ 2,240,677
===========
</TABLE>
See notes to financial statements.
Page 10
<PAGE>
MOUNTAIN, LTD.
Statement of Income
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Contract placement services $ 6,445,290
Cost of services 5,391,319
-----------
Gross margin 1,053,971
Selling, general and administrative expenses (534,799)
Other income (expense):
Interest expense (21,076)
Other, net 6
-----------
Net income before income tax 498,102
Income tax expense (24,787)
-----------
Net income $ 473,315
===========
</TABLE>
See notes to financial statements.
Page 11
<PAGE>
MOUNTAIN, LTD.
Statement of Stockholders' Equity
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Additional
Stock Paid-In Retained Stockholders'
Shares Capital Earnings Equity
----- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 26, 1998 201 $ 37,500 $ 887,929 $ 925,429
Net income 473,315 473,315
Distributions to stockholders (98,766) (98,766)
---- -------- ----------- -----------
Balance at June 30, 1999 201 $ 37,500 $ 1,409,305 $ 1,446,805
==== ======== =========== ===========
</TABLE>
See notes to financial statements.
Page 12
<PAGE>
MOUNTAIN, LTD.
Statement of Cash Flows
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 473,315
Adjustments to reconciles net income to cash
provided by operating activities:
Depreciation 32,665
Changes in operating assets and liabilities:
Accounts receivable (199,820)
Prepaid expenses and other receivables (7,960)
Accounts payable and accrued expenses 8,205
---------
Net cash provided by operating activities 306,405
---------
Cash flows from investing activities:
Capital expenditures (129,870)
---------
Cash flows from financing activities:
Net borrowings under revolver (100,919)
Distributions to stockholders (98,766)
Deposits (8,598)
---------
Net cash flows used in financing activities (208,283)
---------
Decrease in cash (31,748)
Cash, beginning of year 129,366
---------
Cash, end of year $ 97,618
=========
Supplemental cash flow information:
Cash paid for interest $ 20,824
=========
Cash paid for taxes $ 34,958
=========
</TABLE>
See notes to financial statements.
Page 13
<PAGE>
MOUNTAIN, LTD.
Notes to Financial Statements
Six Months Ended June 30, 1999
(Unaudited)
1. NATURE OF OPERATIONS:
MOUNTAIN, LTD. (the "Company") provides telecommunications engineering and
related support services to the telecommunications industry on a worldwide
basis. The majority of the Company's clients are telephone operating companies
and long distance toll carriers throughout the United States. However, the
Company operates several divisions as follows:
V&M Communication Services
VMCS was acquired in 1989 for the purpose of establishing a presence
with (then) Pacific Bell Telephone Company. This division remains
active and is a registered name, or D/B/A, in several of the western
states.
PROTELCON, INC.
PROTELCON is an acronym for Professional Telephone Consultants, Ltd.
This division is used as a D/B/A for MOUNTAIN, LTD. in several states
where neither the name MOUNTAIN, LTD. nor V&M Communications Services
were used in the corporate registration process.
Ditch Witch of West Africa
In the 1980's MOUNTAIN, LTD. was a factory-authorized dealership for
this brand of underground construction equipment. This division
actively pursued sales and service agreements throughout western and
eastern Africa. Today, both this effort and this dealership are
inactive. Ditch Witch of West Africa is another D/B/A of MOUNTAIN,
LTD.
The Land Survey Team
This operating division was developed to address the need for real
property and boundary surveys required by utility clientele. This
division continues to operate, however, it no longer performs
land-surveying services with in-house staff. Such services are now
provided through a network of approved subcontractors. As an in-house
operating division, the land survey team provides Global Positioning
System utility mapping services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Estimates:
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fixed Assets:
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful life of the
individual assets or the related lease terms, if applicable, whichever is
shorter. Upon retirement or sale, the cost and related accumulated depreciation
and amortization are removed from the accounts and any resultant gains or losses
are included in the statement of income. Maintenance and repair costs are
charged to expense as incurred. The estimated useful lives of each class of
assets are as follows:
<TABLE>
<S> <C>
Furniture and fixtures 10 years
Engineering and office equipment 3-5 years
Vehicles 10 years
</TABLE>
Page 14
<PAGE>
Fair Value of Financial Instrument:
The Company's financial instrument consists of a revolving line of credit. The
Company believes the recorded value approximates fair value.
Revenue Recognition and Cost of Services:
Revenues from contract placement services are recognized by the Company upon
performance of services. Cost of services consists of expenses for the
operations of the Company's office, principally direct wages and payroll taxes
paid to the consultants. Accounts receivable includes approximately $11,800 of
unbilled receivables that were billed in 1999.
Advertising Costs:
Advertising costs, expensed as incurred, were approximately $29,383 for the six
months ended June 30, 1999.
Income Tax:
The Company is not generally subject to federal income taxation due to the
Company's election of `S' corporation status, whereby substantially all its tax
attributes and obligations accrue to the stockholders. Therefore, the Company
has no federal income tax provision. The income tax provision is the result of
certain states in which the Company transacts business that do not recognize `S'
corporation status as it relates to state income and franchise taxes.
Fiscal Year:
The Company's fiscal year ends on the last Friday in December.
3. FIXED ASSETS:
As of June 30, fixed assets consisted of:
<TABLE>
<S> <C>
Vehicles $ 76,619
Furniture and fixtures 36,521
Engineering and office equipment 302,209
Leasehold improvements 1,728
---------
417,077
Less accumulated depreciation 136,744
---------
$ 280,333
=========
</TABLE>
4. NOTE PAYABLE:
The Company has a line of credit for $1,000,000 at "National Prime" plus .5%
(8.25%), collaterallized by substantially all Company assets. The amount of
available borrowings is based on formula-determined amounts of accounts
receivable and unbilled receivables. Under the terms of the agreement the
Company is required to maintain on deposit with the bank a cash balance of
$15,000. The note is on demand, and will expire May 30, 2000. The line of credit
has been personally guaranteed by the stockholders.
Page 15
<PAGE>
5. LEASE COMMITMENT:
The Company leases its principal office space. Rent expense for the six months
ended June 30, 1999 was approximately $27,300.
6. CONCENTRATION OF CREDIT RISK:
Approximately 50% of the Company's revenues and approximately 57% of accounts
receivable, are related to one customer. However, contracts with this customer
are individually negotiated and obtained from over seventy of the customer's
regional managers.
The Company maintains cash on deposit in accounts which at times exceed
federally insured limits. The Company has not experienced any losses on such
accounts and believes it is not exposed to any significant credit risk on cash.
7. EMPLOYEE BENEFIT PLAN:
The Company has established an employee benefit plan, under 401K of the Internal
Revenue Code, which covers substantially all employees. The plan provides for
voluntary employee contributions only. For the six months ended June 30, 1999
the Company incurred approximately $2,400 of costs administering the 401K plan.
8. SUBSEQUENT EVENT:
On August 6, 1999, Diversified Corporate Resources, Inc. ("DCRI") completed the
acquisition of all of the outstanding stock of MOUNTAIN, LTD. The purchase price
consists of approximately $2,430,000 in cash, 75,000 shares of DCRI's Common
Stock (subject to a lock-up agreement) and three annual deferred payments of
approximately $1,180,000 each, beginning October 1, 2000. The deferred payments
will be reduced up to 50% each if certain levels of profitability are not
maintained.
Page 16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the acquisition of MOUNTAIN, LTD. ("Mountain") by Diversified
Corporate Resources, Inc. ("DCRI") pursuant to a Purchase Agreement, dated
August 6, 1999. This pro forma information has been prepared utilizing the
historical financial statements of DCRI, Texcel, Inc. and Texcel Technical
Services, Inc. (collectively "Texcel"), and Mountain. This information should
be read in conjunction with the historical financial statements and notes
thereto of DCRI which are incorporated by reference to DCRI's Form 10-K and
the historical financial statements of Mountain which are incorporated within
this Form 8-K. The pro forma financial data are provided for comparative
purposes only and do not purport to be indicative of the results which
actually would have been obtained if the acquisition had been effected on the
dates indicated, or of the results which may be obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the acquisition. The pro forma adjustments are described in
the accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet and
Notes to Unaudited Pro Forma Consolidated Statements of Income. The Unaudited
Pro Forma Consolidated Balance Sheet at June 30, 1999 assumes that the
acquisition of Mountain had occurred on June 30, 1999. The Unaudited Pro
Forma Consolidated Statements of Income for the year ended December 31, 1998
assumes that the acquisition of Texcel and the acquisition of Mountain had
occurred on January 1, 1998. The Unaudited Pro Forma Consolidated Statements
of Income for the six months ended June 30, 1999 assumes that the acquisition
of Mountain had occurred on January 1, 1999.
ACQUISITION
The consideration paid to the former stockholders of Mountain (collectively, the
"Stockholders") consisted of approximately $2,430,000 in cash, 75,000 shares of
DCRI's Common Stock and three annual deferred payments of approximately
$1,180,000 each beginning October 1, 2000. The deferred payments will be reduced
if the level of 1998 adjusted earnings before interest, taxes, depreciation, and
amortization, approximately $1,100,000, is not maintained. The reduction will be
on a pro-rata basis up to a maximum of 25% unless a service contract with a
specific customer is not renewed or cancelled; in which case the maximum
reduction will be 50%. Additionally, if Mountain's net working capital (as
defined in the Purchase Agreement) exceeds $1,000,000 as of the closing date of
the acquisition, such excess will be paid to the Shareholders the later of 45
days after the closing date or when the working capital is received by Mountain.
ASSUMPTIONS
Although neither DCRI nor Mountain has complete information at this time as to
the fair value of Mountain's individual assets and liabilities, an estimate of
the eventual allocation of the purchase price was made on the basis of available
information. The final allocation of the purchase price will be made on the
basis of appraisals and valuations, which give effect to various factors
including the nature and intended future use of assets. It is not anticipated
that any change in the allocation price will be material from the pro forma
adjustments.
For the purpose of pro forma presentations, the excess purchase price over the
fair market value of the net assets acquired is being amortized over an
estimated life of twenty (20) years.
Page 17
<PAGE>
Diversified Corporate Resources, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
DCRI MOUNTAIN,LTD. Adjustments
Historical Historical and Pro Forma
ASSETS 6/30/99 6/30/99 Elimination Combined
- -------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,165,952 $ 97,618 $(2,458,608)A $ 654,962
(150,000)B
Trade accounts receivable, net 7,379,357 1,829,334 9,208,691
Receivables from related parties 28,701 - 28,701
Prepaid expenses and other
current assets 356,346 24,794 381,140
Federal income taxes receivable 133,974 - 133,974
Deferred income taxes 304,325 - 304,325
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 11,368,655 1,951,746 (2,608,608) 10,711,793
PROPERTY AND EQUIPMENT, NET 3,303,924 280,333 3,584,257
OTHER ASSETS:
Intangibles, net 3,700,826 - 2,771,167 A 6,721,993
250,000 B
Other 323,642 8,598 (100,000)B 232,240
----------- ----------- ----------- -----------
$18,697,047 $ 2,240,677 $ 312,559 $21,250,283
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Note payable $ - $ 563,849 $ - $ 563,849
Trade accounts payable and accrued
expenses 3,449,348 230,023 - 3,679,371
Current maturities of capital lease
obligations 24,032 - - 24,032
Current maturities of long-term debt 691,007 - - 691,007
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 4,164,387 793,872 - 4,958,259
DEFERRED LEASE RENTS 74,163 - - 74,163
LONG-TERM DEBT:
Capital lease obligations, net of
current maturities 16,469 - - 16,469
Long-term debt, net of current
maturities 1,227,487 - 1,481,489 A 2,708,976
Deferred income taxes 2,413 - - 2,413
----------- ----------- ----------- -----------
TOTAL LONG-TERM DEBT 1,246,369 - 1,481,489 2,727,858
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 13,212,128 1,446,805 (1,168,930)A 13,490,003
----------- ----------- ----------- -----------
$18,697,047 $ 2,240,677 $ 312,559 $21,250,283
=========== =========== =========== ===========
</TABLE>
Notes to unaudited pro forma consolidated balance sheet:
A. To record initial cash and share consideration
B. To reflect estimated acquisition costs
Page 18
<PAGE>
Diversified Corporate Resources, Inc.
Unaudited Pro Forma Consolidated Income Statement
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Adjustments
DCRI for 1998 MOUNTAIN,LTD. Adjustments
Historical Acquisitions Historical and Pro Forma
12/31/98 (Combined) 12/31/98 Elimination Combined
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Service Revenues:
Permanent placement $ 22,463,649 $ 4,459,998 $ - $ - $ 26,923,647
Specialty services 6,472,457 1,379,564 - - 7,852,021
Contract placement 12,630,072 - 11,400,729 - 24,030,801
Training 666,556 - - - 666,556
------------ ----------- ----------- ---------- ------------
42,232,734 5,839,562 11,400,729 - 59,473,025
Cost of Services 29,506,534 4,076,498 9,452,672 - 43,035,704
------------ ----------- ----------- ---------- ------------
Gross Margin 12,726,200 1,763,064 1,948,057 - 16,437,321
------------ ----------- ----------- ---------- ------------
Selling, General and
Administrative Expenses (10,319,936) (1,321,480) (1,120,377) (184,627)A (12,946,420)
------------ ----------- ----------- ---------- ------------
Other Income (Expenses):
Loss from joint venture
operations (223,362) - - - (223,362)
Interest income
(expense), net 283,773 (188,125) (38,542) (271,342)B (214,236)
Other, net 9,019 16,187 2,826 - 28,032
------------ ----------- ----------- ---------- ------------
69,430 (171,938) (35,716) (271,342) (409,566)
------------ ----------- ----------- ---------- ------------
Income Before Income Taxes 2,475,694 269,646 791,964 (455,969) 3,081,335
Income Tax Expense (897,829) (107,859) (48,020) (86,378)C (1,140,086)
------------ ----------- ----------- ---------- ------------
Net Income $ 1,577,865 $ 161,787 $ 743,944 $ (542,347) $ 1,941,249
============ =========== =========== =========== ============
Basic Earnings Per Share $ .57 $ .67
============ ============
Weighted Average Common
Shares Outstanding 2,752,154 75,000 75,000 2,902,154
============ =========== =========== ============
Diluted Earnings Per Share $ .55 $ .65
============ ============
Weighted Average Common
and Common Equivalent
Shares Outstanding 2,857,577 75,000 75,000 3,007,577
============ =========== =========== ============
</TABLE>
Notes to unaudited pro forma consolidated income statement:
A. To record amortization - intangibles
B. To record interest effects of transaction
C. To record tax effect of MOUNTAIN, LTD. operations (estimated at 40% of
income before taxes)
Page 19
<PAGE>
Diversified Corporate Resources, Inc.
Unaudited Pro Forma Consolidated Income Statement
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
DCRI MOUNTAIN, LTD. Adjustments
Historical Historical and Pro Forma
6/30/99 6/30/99 Elimination Combined
----------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net Service Revenues:
Permanent placement $13,216,272 $ - $ - $13,216,272
Specialty services 3,636,229 - - 3,636,229
Contract placement 6,528,440 6,445,290 - 12,973,730
Training 782,238 - - 782,238
----------- ----------- ----------- -----------
24,163,179 6,445,290 - 30,608,469
Cost of Services 17,173,463 5,391,319 - 22,564,782
----------- ----------- ----------- -----------
Gross Margin 6,989,716 1,053,971 - 8,043,687
----------- ----------- ----------- -----------
Selling, General and
Administrative Expenses (6,269,147) (534,799) (88,643)A (6,892,589)
Other Income (Expenses):
Interest income
(expense), net (9,681) (21,076) (135,115)B (165,872)
Other, net - 6 - 6
----------- ----------- ----------- -----------
(9,681) (21,070) (135,115) (165,866)
----------- ----------- ----------- -----------
Income Before Income Taxes 710,888 498,102 (223,758) 985,232
Income Tax Expense (277,246) (24,787) (84,951)C (386,984)
----------- ----------- ----------- -----------
Net Income $ 433,642 $ 473,315 $ (308,709) $ 598,248
=========== =========== =========== ===========
Basic Earnings Per Share $ .16 $ .21
=========== ===========
Weighted Average Common
Shares Outstanding 2,744,157 75,000 2,819,157
=========== =========== ===========
Diluted Earnings Per Share $ .16 $ .21
=========== ===========
Weighted Average Common
and Common Equivalent
Shares Outstanding 2,777,399 75,000 2,852,399
=========== =========== ===========
</TABLE>
Notes to unaudited pro forma consolidated income statement:
A. To record amortization - intangibles
B. To record interest effects of transaction
C. To record tax effect of MOUNTAIN, LTD. operations (estimated at 40% of
income before taxes)
Page 20
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
C. EXHIBITS
(1) Consent of Independent Public Accountants - filed herewith
(2) Purchase Agreement, by and between the Company and the
stockholders of MOUNTAIN, LTD. (incorporated by reference to
Exhibit 10.3 of the Company's Form 10-Q filed August 16, 1999)
(3) Employment Agreement, by and between the Company and Joseph H.
Hosmer (incorporated by reference to Exhibit 10.4 of the
Company's Form 10-Q filed August 16, 1999)
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
Date: September 30, 1999 By: /s/ Douglas G. Furra
---------------------------------
Douglas G. Furra
CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Page 22
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-27867 and 333-56671) of Diversified
Corporate Resources, Inc. of our report dated August 6, 1999 relating to the
financial statements of MOUNTAIN, LTD. which appears in the Current Report on
Form 8-K of Diversified Corporate Resources, Inc. dated September 30, 1999.
PricewaterhouseCoopers LLP
September 30, 1999
